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Oil Price May Fall back down below $40 a Barrel

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A pessimistic outlook on the international oil prices is spreading widely so that the price may decline below the US$40 level a barrel again due to a supply glut, weak demand, and mounting inventory. The September futures price of West Texas Intermediate fell 2.4 percent to $43.13 at the New York Mercantile Exchange on July 25, a three-month low. On the same day, the September futures price of Brent was also closed down 2.1 percent to $44.72 at London’s ICE.
The oil prices have rallied for four months since hitting the bottom in January this year. During this period, the price has soared to $51 from a low of $33 per barrel. After surpassing the $50 mark early June, however, it has shown sudden weakness ever since.
The primary reason for the oil prices‘ weakness is oversupply. Nigeria, which had suffered from supply glitches due to rebel attacks, is recovering quickly after suppressing the rebels that assaulted major oil production bases. Iraq is also increasing its oil shipments overseas by a large margin. The number of oil rigs under operation in the United States has increased by 14 to 371 from a week ago, continuing its four-week rally.
The fact that the supply of refined oil by refineries has increased abruptly is working to accelerate the pace of oil price decline. Morgan Stanley said recently in its report, “The supply glut problem in oil refineries is serious. Due to this, it is likely that the demand for crude oil would shrink for the next few months.” The investment bank adjusted downward its daily refined oil demand forecast to 625,000 barrels from 800,000 barrels.
The Original Posted by sglee@hankyung.com/The Korea Economic Daily